Brinker International, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first 39 weeks ended March 27, 2024; comparisons are to periods ended March 29, 2023. Although the request metadata says “2023 Q3,” this filing covers fiscal 2024 Q3.
Business context and results
Brinker owns, operates and franchises Chili’s and Maggiano’s. At quarter-end it had 1,618 restaurants: 1,176 company-owned and 442 franchised. Fiscal Q3 included 13 weeks; year-to-date (YTD) figures cover 39 weeks.
| Metric ($ millions, except per-share data) | Fiscal Q3 2024 | Fiscal Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total revenue | 1,120.3 | 1,083.2 | 3,206.9 | 3,057.7 |
| Operating income | 69.9 | 64.2 | 156.5 | 85.1 |
| Net income | 48.7 | 50.7 | 98.0 | 48.4 |
| Diluted EPS | $1.08 | $1.12 | $2.17 | $1.08 |
| Operating margin | 6.2% | 5.9% | 4.9% | 2.8% |
Fiscal Q3 revenue rose 3.4% and operating income rose 8.9%, while net income fell 3.9%. YTD revenue increased 4.9%, operating income 84%, and net income approximately 102%. Higher interest expense and taxes weighed on Q3 net income. YTD effective tax rate was 8.3%, versus a 5.2% benefit rate in the prior year, primarily reflecting higher pretax income and reduced relative benefit from the FICA tip tax credit.
Revenue, margins and operating trends
- Q3 comparable sales increased 3.3% at company-owned restaurants: Chili’s +3.5% and Maggiano’s +1.7%. Price increases supported sales, but company-owned traffic declined 2.4%; Maggiano’s traffic fell 7.5%.
- YTD company-owned comparable sales rose 4.7% (Chili’s +4.8%; Maggiano’s +3.9%), while traffic declined 3.1%. System-wide comparable sales increased 4.2%.
- Q3 food and beverage costs improved to 25.1% of company sales from 26.8%, mainly due to pricing and favorable mix. Restaurant labor improved slightly to 33.4% from 33.6%; restaurant expenses deteriorated to 27.4% from 26.2%, including higher advertising and repairs.
- YTD food and beverage costs improved to 25.5% of company sales from 28.6%, reflecting pricing, favorable mix and lower poultry costs. Restaurant expenses rose to 28.0% from 27.0%; labor was 33.9% in both periods.
- Chili’s drove most revenue growth. YTD Chili’s segment revenue increased 5.3%; Maggiano’s increased 1.7%. Q3 corporate costs contributed to a consolidated operating loss at the corporate segment level.
Cash flow, liquidity and debt
- YTD operating cash flow was $280.4 million, up from $200.8 million. Capital expenditures were $140.9 million, versus $136.6 million; operating cash flow less capital expenditures was approximately $139.5 million.
- Cash was $15.5 million at March 27, 2024. Current assets of $170.9 million were below current liabilities of $579.1 million.
- Long-term debt and finance leases, net of issuance costs and current installments, totaled $818.5 million; gross debt and finance lease obligations were $839.4 million. The company had $51.3 million outstanding on its $900 million revolving facility and $848.7 million available.
- The revolver rate was 7.20%; the facility matures August 2026. The 5.000% notes mature in October 2024. Management intends to refinance them through the revolver. The company reported compliance with debt covenants.
- YTD net revolver repayments were $110 million. Brinker repurchased 0.8 million shares for $25.6 million; approximately $183 million remained authorized under its $300 million repurchase program.
Outlook, risks and unusual items
- No earnings or comparable-sales guidance is provided in the supplied filing text. Management expects cash, operating cash flow and revolver availability to cover capital expenditure and working-capital needs for at least the next 12 months, and expects covenant compliance through the remainder of fiscal 2024.
- Fiscal 2024 projected openings were 28–34 restaurants in total, including 9 company-owned and 19–25 franchised locations. Franchisees opened 16 restaurants during the first 39 weeks.
- Management cited macroeconomic and geopolitical pressures, including inflation in wages and food costs. Other risks include labor availability and costs, consumer demand and traffic, commodity volatility, supply-chain disruption, competition, technology and data security, and litigation.
- Other gains and charges were $9.9 million in Q3 and $19.5 million YTD, including restaurant closure costs, enterprise system implementation, litigation and claims, and lease contingencies.
- A putative class action tied to a 2018 Chili’s payment-card incident remains pending. Brinker says the potential loss is not determinable and has not accrued a liability. It also reported $13.2 million of maximum known exposure on lease guarantees for divested locations and $5.8 million in undrawn standby letters of credit. Management stated that other pending legal matters are not expected to have a material adverse effect.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. The filing says there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Chili’s sales momentum can persist as traffic remains negative, and whether Maggiano’s traffic weakness improves.
- Food-cost benefits from pricing and lower poultry costs versus wage, advertising, repairs and other restaurant expense pressures.
- Execution and cost of refinancing the $350 million 5.000% notes due October 2024, including the effect on interest expense and revolver capacity.
- Future cash generation and capital needs, given low cash, negative working capital, planned restaurant investment and ongoing share repurchases.
- Developments in the payment-card litigation and lease guarantees, for which the filing discloses uncertainty or potential exposure.